Common Medicare Myths and Misconceptions — and How to Dispel Them

Contrary to what many may believe, Medicare will not pay for long term care — at least not in a way that’s meaningful to most retirees. What Medicare does do is cover up to 100 days of care in a skilled nursing facility — provided the need is triggered by a hospital stay of at least three days – and pay for hospice care for the terminally ill. It will not, however, pay for care in a retirement community, nursing home or assisted living facility. What’s more, and only the first 20 days of a skilled nursing facility stay are completely covered. As of 2017, days 21 through 100 incur $164.50/day in coinsurance.

Why the confusion, given the growing need for long term care?

“I think the misunderstanding happens because clients confuse Medicare with Medicaid,” says Storey. “Medicare won’t cover long term care, and Medicaid will – but only after you’ve depleted your assets.”

MISCONCEPTION: I can enroll whenever I want

Every year holds plenty of opportunities for clients to sign up for Medicare, but enrollment is far from a free-for-all.

“Timing is one of the biggest problems,” says Giardini-Russell, “and so many clients aren’t sure how to sign up, when to sign up or whether they should sign up at all.”

First-time enrollees are eligible from three months before they turn 65 to three months after. Aside from this initial enrollment period (IEP), Jan. 1 through March 31 is general enrollment for parts A and B, and Oct. 15 through Dec. 7 is Part D open enrollment D. Moreover, traditional Medicare recipients can switch to Medicare Advantage (and vice versa) during open enrollment; from Jan. 1 through Feb. 14, Advantage enrollees can switch back to traditional Medicare without a penalty.

MISCONCEPTIOINS: I don’t have to sign up for Medicare

Speaking of penalties: Retirees often incur extra charges even after they think they’re in the clear. Workers over 65, for example, in employer-sponsored plans don’t have to sign up yet unless their company employs fewer than 20 workers; in that event, the employer-sponsored health plan automatically becomes secondary to Medicare at age 65, and the Part B penalty kicks in. For every 12-month period a client is Medicare eligible but unenrolled, their premiums can rise by 10 percent. That increase is good for as long as they’re enrolled. A similar penalty exists for Part D: 1 percent of the base premium, multiplied by the number of full uncovered months.

“COBRA doesn’t count as credible coverage, either,” says Giardini-Russell.

While COBRA may offer secondary coverage to clients for a year or more after retirement, retirees still have no longer than eight months to enroll in Part B without a penalty. A similar situation exists for small business owners and the self-employed, who must enroll during their IEPs to avoid penalties – even if they still privately purchase insurance for themselves.

Clearing up the confusion

Ultimately, informing your clients — and yourself — about Medicare will help you to create more realistic investment and drawdown strategies and establish yourself as a well-rounded expert. Unless they’ve already begun collecting Social Security, retirees aren’t notified told when they’re required to enroll in Medicare. And between late penalties and uncovered expenses, simple mistakes can lead to avoidable, portfolio-crippling medical expenses.

Where to start?

“First, understand that one type of coverage isn’t necessarily better than another,” says Storey. “You need to be able to look at individual situations and figure out which options make sense.”

To that end, he recommends the resources provided by the Center for Medicare and Medicaid Services, as well as the checklists, cost estimators and brochures available to many firms. Furthermore, he suggests starting the conversation early on.

“Think about what a client’s health care expenses will look like well before it’s time to enroll,” Storey says. “Once you can estimate those figures, you can help them plan for ways to cover premiums and other expenses.”

For many advisors, though, a strategic partnership with a Medicare expert may be the best bet.

“It’s imperative for advisors to align themselves with someone who knows what they’re doing,” says Giardini-Russell. “If you’re not talking about it with clients, you’re missing the boat, but most advisors don’t have enough time to really handle it. Clients are ready and anxious to have the information, and they’ll be appreciative to you for the recommendation.”